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Market Data
by
Charles Lamson
Usually presented in the form of averages, or indexes, market data describe the general behavior of the securities markets. The averages and indexes are based on the price movements of a select group of securities over an extended period of time. They are used to capture the overall performance of the market as a whole. You would want to follow one or more of these measures to get a feel for how the market is doing over time, and, perhaps, an indication of what lies ahead. The absolute level of the index at a given point in time (for the OTC market). These measures are all intended to keep track of behavior in the stock market, particularly, stocks on the NYSE (the Dow, S&P, and NYSE averages all follow stocks on the big board). In addition, several averages and indexes follow the action in other markets, including the bond, commodities, and options markets for mutual funds, real estate, and collectibles. However, because all those other averages and indexes are not followed nearly as much as those of stocks, we will concentrate here on stock market performance measures.
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Dow Jones Averages
The granddaddy of them all and probably the most widely followed measure of stock market performance is the Dow Jones Industrial Average (DJIA). Actually, the Dow Jones averages, which began in 1896 are made up of four parts: (1) an industrial average based on 30 stocks, (2) a transportation average based on 20 stocks, (3) a utility average based on 15 stocks, and (4) a composite average based on all 65 industrial, transportation, and utility stocks. The makeup of the 30 stocks in the DJIA does change a bit overtime as companies go private, are acquired by other firms, or become less of a force in the marketplace. Most of the stocks are picked from the NYSE, but there are a few Nasdaq shares in there, such as Intel and Microsoft. Although these stocks are intended to represent a cross-section of companies, there is a strong bias toward blue chips, which is one of the major criticisms of the Dow Jones Industrial Average. Critics also claim that an average made up of only 30 blue-chip stocks---out of some five or six thousand issues---is hardly representative of the market. However, the facts show that as a rule, the behavior of the DJIA closely reflects that of other broadly based stock market measures---with the possible exception of the NASDAQ. Exhibit 1 lists the 30 stocks in the DJIA, along with some important dates for the Dow.
Standard & Poor's Indexes
The Standard & Poor's (S&P) indexes are similar to the Dow Jones averages to the extent that they both are used to capture the overall performance of the market. However, some important differences exist between the two measures. For one thing, the S&P uses a lot more stocks, the popular S&P 500 composite index is based on 500 different stocks, whereas the DIJA uses only 30 stocks. What's more, the S&P index is made up of all large NYSE stocks, as well as, some major AMEX and OTC stocks, so there's not only more issues in the S&P's sample but also a greater breadth of representation. And finally, there are some technical differences in the mathematical procedures used to compute the two measures, the Dow Jones is an average, whereas the S&P is an index. Yet in spite of these minor differences, movements in these two measures are in fact very highly coordinated and as a result, they are used in much the same way.
There are eight basic S&P indexes: (1) an industrial index based on 400 stocks; (2) a transportation index of 20 stocks; (3) a public utility index of 40 stocks; (5) a composite index for all 500 of the stocks used in the first four indexes; (6) the MidCap 400; (7) the SmallCap 600; and (8) the composite S&P 1500 made up of the S&P 500, 400, and 600 indexes. The MidCap index is made up of 400 medium-sized companies---those with market values that, for the most part range from about $500 million to $3 billion, or more, while the SmallCap index consists of small companies, with market caps of around $500 million or less.
The NYSE, AMEX, and Nasdaq Indexes
The most widely followed exchange-based indexes are those of the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Nasdaq. The NYSE index includes all the stocks listed on the "big board." In addition to the composite index, the NYSE publishes indexes for industrials, utilities, transportation, and finance subgroups. The behavior of the NYSE Industrial index closely mimics that of the DJIA and the S&P 500.
The AMEX index reflects share prices on the American Stock Exchange. Made up of all stocks on the AMEX, it is set up in such a way that it directly captures the actual percentage change in the share prices. For example, if the price change in AMEX stocks from one day to the next were +3 percent, the AMEX index would likewise increase by 3 percent over the previous day's value. Like the NYSE indexes, the AMEX index is often cited in the financial news.
Activity in the OTC market is captured by the Nasdaq indexes, which are calculated like the S&P and NYSE indexes. The most comprehensive of these indexes is the Nasdaq composite index, which is calculated using virtually all the stocks traded on the Nasdaq system. The other Nasdaq indexes are the industrial, insurance, bank, computers, and telecommunications indexes. In addition, there is the Nasdaq 100 Index, which tracks the price behavior of the biggest 100 (nonfinancial) firms traded on the Nasdaq---companies like Microsoft, Intel, Oracle, Cisco, Staples, and Dell. The Nasdaq Composite is often used today as a benchmark in assessing the price behavior of high-tech stocks. The index is far more volatile than either the Dow or the S&P and way out-performed other market measures from 1995 to 1999---before taking a big dive in 2000, 2001, and 2002.
*SOURCE: PERSONAL FINANCIAL PLANNING, 10TH ED., 2005, LAWRENCE J. GITMAN, MICHAEL D. JOEHNK, PGS. 461-464*
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